Superannuation guarantee war looms as pension reliance grows

Boffins debate the super guarantee rise as self-funded retirements decline.

pension queue

More Australians will be reliant on pensions to fund their retirement unless the Australian economy rebounds quickly from the recession.

The Association of Superannuation Funds of Australia (ASFA) predicts 41 per cent of people reaching retirement age in 2023 will be fully self-funded, down from 43 per cent before the pandemic.

“This means about 5000 more people will be relying on government support through the pension or part-pension than previously forecast,” reports The Age.

ASFA chief executive Martin Fahy said the reduction in expected numbers of self-funded retirees underlined the importance of maintaining the planned increase in the superannuation guarantee from the current 9.5 per cent rate to 12 per cent.

“ASFA projects that moving Australia's superannuation system to 12 per cent superannuation guarantee would see half of all retirees self-funded in their retirement by 2050,” Mr Fahy said.

“The move to a 12 per cent superannuation guarantee is now critical for pre-retirees, and for generations to come, to achieve a dignified retirement.

“If today’s young people are to avoid ending up on not much more than the Age Pension, every single dollar contributed to superannuation counts.”

A major conflict – dubbed the Super Wars by Nine – is brewing over the guarantee increase.

On one side, business groups, the Australian Council of Social Service, the Grattan Institute think tank, the Reserve Bank, many economists and up to a dozen coalition MPs oppose the increase, worried that forcing employers to contribute more to their employees' super funds will deter wages growth and hinder economic recovery.  

The Labor Party, superannuation funds, former treasury secretary Ken Henry and former prime ministers Paul Keating, Kevin Rudd and Malcolm Turnbull say wages may not rise regardless and the guarantee increase is crucial to ensure Australians have adequate retirement funding.

Industry Super chief executive Bernie Dean claims the very existence of super is at stake.

ASFA says Australians needed the following amounts in super to be heading for a comfortable retirement:

  • a 30-year-old should have $61,000
  • a 40-year-old $154,000
  • a 50-year-old $271,000
  • a 60-year-old $430,000.

These amounts are to achieve a comfortable retirement at age 67 when singles should have $545,000 in retirement savings and couples $640,000, it says.

“That equates to an annual pre-tax income of $65,000 with investment returns at 6.7 per cent,” the Herald Sun reports.

“A comfortable retirement enables a healthy retiree to have a good standard of living including top level private health insurance, travel on domestic and international holidays, own a reasonable car and have a good internet service and mobile phone allowance.”

Currently, the full Age Pension for a single person is $24,552 a year.

Surprise changes in the recent Federal Budget aim to reduce unnecessary fees from multiple super accounts. Employers are now required to find your account through the ATO and pay your super into your existing account unless you choose another one.

There are also plans to introduce a new comparison tool YourSuper, which ranks funds by fees and returns.

Superannuation was aimed at supplementing the Age Pension, providing a more comfortable lifestyle for retirees and easing pressure on the budget.

But increasing the rate of compulsory superannuation will further weaken the economy at a time when it is ailing because of the effects of the pandemic.

Be super wise (Source: Sydney Morning Herald)

Is your superannuation enough to retire on?

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    COMMENTS

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    panos
    21st Oct 2020
    9:36am
    These amounts are to achieve a comfortable retirement at age 67 when singles should have $545,000 in retirement savings and couples $640,000, it says.

    Yep dream on baby.............
    Elizzy
    21st Oct 2020
    10:13am
    You are right! That sum assumes a continuous employment history of 40 to 45 years with an ever-increasing salary. Sure...
    sainter
    21st Oct 2020
    11:02am
    Exactly Elizzy gone are the days of your post...total and utter rubbish to assume either of these things occurring now days....if your a pollie for a number of years those figures might come into play or an over paid CEO....otherwise it's an impossible dream.
    sainter
    21st Oct 2020
    11:02am
    Exactly Elizzy gone are the days of your post...total and utter rubbish to assume either of these things occurring now days....if your a pollie for a number of years those figures might come into play or an over paid CEO....otherwise it's an impossible dream.
    MB100D
    21st Oct 2020
    2:18pm
    i achieved double that amount, my 2 sons, halfway through their working lives are both nearly there. Not only possible but easily achieved with careful planning and having a good knowledge of finance principles.
    panos
    21st Oct 2020
    2:25pm
    MB100D

    Well are you not, your a lucky duck!!!!!
    KSS
    21st Oct 2020
    6:39pm
    Can't agree Panos. I am certainly on track to achieve the recommended amounts. But it is not without sacrifice. Its all about choices. We all make them and then have to live by the consequences.
    MB100D
    22nd Oct 2020
    2:32pm
    Yes panos, I guess Luck had a lot to do with my situation.
    Lucky I was born in Australia.
    Lucky I had driven parents that instilled in me the right morals and discipline.
    Lucky I had the intelligence to apply myself at school.
    Lucky I pursued continuous education in my chosen field and in particular financial theory.
    Lucky I was able to secure well paying work, sometimes 2 at the same time.
    lucky I had reasonable health most of my life, not so lucky the last 10 years. (Cancer, heart disease, kidney stones.) But with all that the I have found the health system first rate.
    So yes I'm a Lucky Duck.
    Farside
    22nd Oct 2020
    2:46pm
    whether one achieves a 'comfortable retirement' and the $545,000 at 67 depends on current working status, income and where in the spectrum that income is situated. Older unemployed may appear to be on track with $430,000 at age 60 but then living off savings earmarked for their retirement until retirement at 67 are not going to find themselves in a 'comfortable retirement' without some financial gymnastics.

    Those on average (mean) incomes at retirement age of course will have no such trouble while those on low incomes are unlikely to ever achieve that level of savings in current dollars no matter how hard they save. The odds of the 50% of workers on below median incomes will hope to avoid misfortune and make sacrifices, while those on median or better might get there if life throws no curve balls like prolonged unemployment, chronic illness, care for family etc.
    Garyand
    21st Oct 2020
    9:53am
    Suprising that this article doesn't suggest ways to increase a super balance, such as salary sacrifice and voluntary contributions, etc. Pretty much impossible to get near the $545,000 or $640,000 otherwise. As for any suggestion that the 12% move should be under question from a government that has encourged people to use their super early..
    Theo1943
    21st Oct 2020
    11:31am
    Would you like to explain the scenario for a worker who is working on casual rates when the employer feels like giving them some hours and for a worker in the gig economy. These conditions apply to a third of the working population today.
    Tanker
    21st Oct 2020
    11:50am
    Exactly. Those working on those employment terms haven't got a chance. Work Choices was loaded all one way in creating that opportunity for employers to have it all their way.
    Peter H
    21st Oct 2020
    11:33am
    The amounts stated are likely to be based on current incomes. I started working in 1977 when income was $5,000. This increased slowly to $30,000 in 1989. Between 1989 and 2018 my income fluctuated between $45,000 and $65,000. This meant that growth in Superannuation funds was slow. This, coupled with a three year period of significant negative growth between 2000 and 2005 realised a Superannuation balance of $210,000 in 2018. Obviously this figure is well short of the figures in the article. I am currently 63, unemployed apart from some contracting I do on a self employed basis. I live a modest life with no holidays but I can manage. Many in my age group are not so fortunate and will have a heavy reliance on the pension just to maintain a very modest existence. Quoting figures that are unrealistic for the average person is counter productive. I will also state that I was fortunate enough to accumulate superannuation from when I started working and not when it became compulsory some time later.
    floss
    21st Oct 2020
    11:33am
    Would you say the Morrison and Hockey have encouraged people to take up major superannuation investments.They are so thick i very much doubt they realize the long term damage the have done.
    Dave R
    21st Oct 2020
    11:58am
    This article assumes a return of over 6%, at a time when interest rates are almost zero and likely to remain very low for years to come. Also companies cutting dividends. IMO Super fund investments will be returning about 2% this financial year and for a long time to come.
    Sceptic
    22nd Oct 2020
    2:46pm
    It does not reflect interest rates alone, but investments in growth commodities.
    Anonymous
    23rd Oct 2020
    12:43pm
    The stocks retirees invest in are all falling in value. Banks and Telstra have lost more than the total dividends paid out over the past 5 years. Retirees will struggle to get anywhere near 5% in the current environment unless they happen to be investment gurus - which one should not have to be to make a decent living after 50 years of work, paying tax and saving.
    Rae
    24th Oct 2020
    12:48pm
    We are entering a deflationary period and although the super industry love the $42 billion in fees and charges it won't continue.

    The full aged pension, concessions and some savings for maintenance and new appliances if needed is looking jolly good compared to saving for decades and missing out on all the benefits of the welfare system.
    tobymyers
    21st Oct 2020
    12:15pm
    Is there an echo in this room ?
    Sooty from Marketing
    21st Oct 2020
    12:52pm
    We’re so lucky to have the LNP in charge.
    Sceptic
    22nd Oct 2020
    2:47pm
    You are an idiot
    inextratime
    21st Oct 2020
    1:21pm
    Join the public service. They already get between 12 - 17% super. Unfair, YEP.
    panos
    21st Oct 2020
    2:29pm
    Which public service are you talking about ??? Fairy land
    Buggsie
    21st Oct 2020
    2:54pm
    No, Fairy Land retirement exists in state and Federal governments lavishly funded from our taxes
    inextratime
    21st Oct 2020
    3:21pm
    I could name any number of State and Federal departments including the AFP, the ATO and the DVA. But do your won checks and you will discover the great Super inequality scheme.
    BraveArrow
    21st Oct 2020
    3:18pm
    Sometimes I wonder re the sincerity of the government in spruiking superannuation for the following:-
    (1) The tax on super contributions already take 15% of your money going in.- It should be 0% for those on minimum wages
    (2) The superannuation funds make a hefty skim your super even on bad or lean years and in the OECD, Australia has too high fees! which they hide very well with a lot of fluff - I have seen countries where the returns on super invested is a fixed, say 6.0 -6.5% year on year no matter how the economy or stockmarket performs.
    (3) With the gig economy and the casualization of labour in Australia how do you get a steady income and get your employer to contribute to your super? There should be severe penalties for employers who cheat employees of their super contribution when the latter are entitled to it.
    (4) It will be interesting for the actuaries to calculate the amount of super that can be accumulated for someone on a 'permanent' job on minimum wages from age 18-19 till retirement and see what numbers they come up with, based on current contributions and current historical returns from an average industry superfund.
    Horace Cope
    21st Oct 2020
    3:43pm
    "Is your superannuation enough to retire on?"

    That's a simple question but cannot get a simple answer because as well as the amount of super we also need to know the projected date of death to give a full answer. All of this is based on hypotheses without context and, as such, anyone can change a decimal point here and a decimal point there and show that we've never had it so good.

    The Association of Superannuation Funds of Australia has skin in this game as any increase in the super guarantee scheme automatically flows into their coffers. The arguments for includes mainly Labor politicians or some who may want to be and if we look closely at the list we find; the Labor Party (no names or qualifications mentioned), Rudd - Arts degree specialising in Chinese, Turnbull - Arts degree, Law degree & Civil Law degree followed by Keating who left school at age 14 to become a clerk with Sydney County Council. All worthy names to drop but no formal qualifications to support their hypotheses. I am equally as unqualified so I am therefore to be believed in stating my opinion. My opinion is that the increase from 9.5% to 12% is legislated and the only way to stop it happening is to change the legislation which, as we all know, requires the assent of both Houses.
    chippy
    21st Oct 2020
    4:25pm
    Someone forgot to mention inflation $65,000 by then will not be worth $65,000
    skinner
    21st Oct 2020
    7:34pm
    Why self-fund your retirement when it stops you from getting the valuable discounts on medications among other things? If the gov allowed self-funded retirees this benefit & others, them perhaps more would aim at becoming self-funded?!
    Anonymous
    21st Oct 2020
    10:08pm
    Exactly, skinner. There will be LESS SFRs in future because the penalties imposed make it so much more appealing for many to spend up, buy a bigger house, give money to the kids... or whatever, and claim a pension.

    I know many who could easily self-fund but are drawing full pensions after investing $1.5 mil+ in the family home, giving a million or so to the kids, and taking a few world trips. A former neighbour just sold their home for $1.5 mil and is hell-bent on spending min. $1.8mil on their next house so they preserve their full pension and all benefits. The system is encouraging manipulation and irresponsible lifestyles and punishing people who do the right thing. Why wouldn't there be more pensioners? Increasing the SG levy won't help while there are strong incentives for people to retire with less.
    Sceptic
    22nd Oct 2020
    2:49pm
    Yes Skinner, spend, spend spend, then when you are on the pension and collecting the referred to discounts, you can moan that you never had a chance to become a self-funded retiree.
    Anonymous
    23rd Oct 2020
    8:34am
    That's what all the pensioners are doing, Sceptic... crying 'through no fault of my own'. So whose fault was their overspending and indulgence?
    MarkAdel
    21st Oct 2020
    10:28pm
    I have a pension from my 23 years working in the Government.
    I also worked for 2 American companies for 19 years and put an additional 15% of my salary into my superannuation.
    I also put $100,000 into my superannuation from my retrenchment payout.
    I now have a fortnightly pension for life from my Government work superannuation and a monthly pension from my private superannuation fund which currently has a balance of $640,000.
    I was lucky that I had a good job, reasonable paid and could afford to put extra into superannuation. My lifestyle and spending is no different than when I was working.
    I know that a lot of people aren’t that lucky and my sympathies are with you.
    KSS
    22nd Oct 2020
    5:58am
    Well done to you. The fact is you made extra payments into your super whilst working and thereby secured your pension in retirement. Luck has little to do with it.

    As I have said before we all make choices and live with the consequences of those choices
    There are some here that chose differently and now whine about it.
    panos
    22nd Oct 2020
    11:22am
    We are not whining, but get tired of the SFR's whinging about having to use there capital, cause now interest rates have hit rock bottom and they will go further... LOL
    Sceptic
    22nd Oct 2020
    2:52pm
    Fort a change, I agree with your sentiments Panos, which is a little different to your usual moaning. I get cross about the SPRs who complain about using capital when interest rates are too low to pay for day to day living. That is exactly what the savings to build the capital is for.
    Anonymous
    22nd Oct 2020
    10:28pm
    No, Sceptic. It isn't. I didn't sacrifice holidays and restaurant dinners and nice furniture and clothing in order to do nothing other than save the government money. I saved to ensure I had enough to be comfortable in my winter years and could leave a little to my offspring. Pensioners are funded in retirement regardless of what they chose to spend on. Their gambling, drinking, partying and cruises are taxpayer-funded. Why the hell should people who sacrificed lifestyle earlier in life not receive the same benefits as those who lived it up? Rewarding irresponsible living is not a model for economic prosperity, nor is it fair to those who lived responsibly.

    My capital SHOULD be mine to preserve for benefits I choose - NOT to fund pensions for others while I continue to go without for no better reason than that I went without earlier hoping to avoid hardship now.
    tobymyers
    23rd Oct 2020
    1:09pm
    Oh you idiot Young Again.
    What are you saving for ? do you know the date and time of your death ?
    let us all know then we can all plan ahead just in case we don't die before we retire.
    Your brain must hurt you a lot because your thinking would give any one a head ache
    Anonymous
    24th Oct 2020
    9:01am
    If I knew the date and time of my death, tobymyers, I would be less concerned about my savings disappearing. But based on genetic history, I MIGHT have another 30 years to live. If so, I will certainly need to preserve my capital now because it won't be worth much two decades from now. Or, I might need extensive home help or personal care in years to come, but I won't be able to afford that because of a stinkingly unfair and economically harmful system that deprives savers of the benefit of their saving.

    It's you who is the idiot, I think. Which of us has the assets, tobymyers? Which of us has the brains to protest a system that punishes responsible living and will push the long term cost of pensions up by forcing more and more folk to reduce their assets? Which of us has the common sense to recognize that people don't save to benefit others, and ought morally be entitled to enjoy the benefit of having sacrificed to save? If you had two children and one spent their pocket money on lollies and the other put theirs in a piggy bank, would you think it fair to next week only give pocket money to the one who spent theirs the week before? That's the way our system works. You blow your money irresponsibly, you are given more. You save it, like governments urge you to, and you are deprived. Only an idiot would condone such a system.
    MB100D
    25th Oct 2020
    9:44am
    Youngagain, your last sentence says it all.
    Rae
    24th Oct 2020
    12:39pm
    Total load of nonsense. Nobody is getting 6.7% yields.

    Even those of us who raised kids on less than the aged pension after tax, childcare fully self funded and compulsory super after tax with no concessions have been slammed by the budgets of Hockey and Cormann.

    Australian's woke up and unless stuck in income stream and annuities are voting with their feet, spending savings on a nice new home and new car and claiming the aged pension and concessions.

    The budgets of Hockey and Cormann decimated superannuation.

    It is simply no longer fit for purpose and is going to get a lot worse with negative interest rates.

    I've been self funded but my next act will be the part pension and the freebies.

    Being one of the last savers left getting screwed over is no longer any fun.
    Anonymous
    24th Oct 2020
    2:17pm
    Me too, Rae. The system is stuffed, and long term the cost of pensions can only soar because saving for retirement is no longer a viable option unless you are very wealthy.
    BillW41
    25th Oct 2020
    11:10am
    I reeived early retirement in 1992 and was handed $250,000 in super and other entitlements, $30,000 of which immediately went to pay off the mortgage and car loan. The GFC lost me $50,000 and, when she retired, I combined my wife's $80,000 super with mine. Now 79, having taken several overseas holidays, changed cars regularly, withdrawn a regular minimum monthly pension and the occasional annual $5,000, We still have about $55,000 left in an annuity fund plus some shares and bank balances above $20,000. My wife and I are each paid a full Australian pension plus a partial UK pension and seem to manage quite well without careful budgeting.


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